2016 investment release

Published Date : 15/02/2017

PERE inflows in 2016 were seen at their highest in nine years at INR 399 bn (USD 5.97 bn), registering a 26% increase from 316.7 BN (USD 4.8 bn) in 2015. The number of deals closed during the year also rose only 5% 119, while the average deal size, increased from INR 2.8 bn (USD 43 mn) 2015 to INR 3.4 bn (USD 50 mn), signaling increased confidence amongst investors to make larger investments into the Indian real estate sector.

Residential assets remained the most preferred asset class as over 52% (INR 208 bn / USD 3.1 bn) of the total PERE was witnessed in the asset class during the year. Inflows into the sector garnered a 5% increase from that of last year. Within residential investments, Mumbai was the most preferred location and accounted for 34% of the share, followed by Delhi NCR and Bengaluru accounting for 26% and 20% of the share, respectively. Domestic funds were most active investors in residential assets and accounted for almost 80% of the total investments.

Investments in commercial office assets were noted at INR 57 bn (USD 0.85 bn), lower than that of last year as a few large deals for office portfolios initiated in 2016 are still in active discussion and likely to close this year. Majority of the deals, accounting for 61% were witnessed in Mumbai, followed by Bengaluru’s share of 18% share and Hyderabad’s 9% share.

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ANNOUNCED PE DEALS: ASSET CLASS-WISE - VOLUME – (INR bn)

Period

Residential

Office

Retail

Mixed-use

2016

208

57

72

229

2015

199

60

10

22

2014

161

97

4

12

2013

43

36

6

28

2012

107

55

0 / 0

12

Anshul Jain, Managing Director, India Cushman & Wakefield said, “The recent efforts by the government to regulate the sector has been viewed favourably by investors who are now looking at the long term potential of the Indian market. Moreover, the commercial office sector has been witnessing sustained high demand and investors are enthused by the opportunity in this space, led by impending REITs. Despite global economic concerns, lower GDP growth projection due to demonetization, and slower revenue growth forecasted in the IT-BPM sector, the office sector is seeing stable growth with adequate pre-commitments in key growth markets such as Bengaluru and Hyderabad. Aside of the commercial office sector, we will also saw a keen investors’ appetite for retail assets increasing over the next few years as it has remained uncharted for a long period of time.”

PE INFLOWS IN MALL ASSETS THE HIGHEST IN 9 YRS

The year 2016 was one of the best years for the organized retail real estate sector, with the sector attracting INR 72 bn (USD 1.07 bn) of PE investments. PE inflows into malls rose more than seven-fold in 2016 from 2015 levels on account of rising interest from institutional investors and funds that are looking to invest in top-grade leased malls with low vacancy levels. About 35% of the investments in retail assets made during the year was concentrated in Mumbai, resulting from two large transactions. Besides Mumbai, investors pumped in money in Delhi-NCR, Coimbatore and Pune. Relaxed FDI norms, positive economic outlook and rising disposable income are attracting retailers to India, albeit with caution.

“Capitalizing on the higher consumer spending expected, investors are looking for well-performing malls that are professionally run with high conversion rates. Anticipating a revival in consumer spending owing to stability in growth of the Indian economy, not only are developers focusing on completing their existing projects, but also repositioning their existing malls as complete entertainment centres, hoping to attract shoppers across all ages. Over the next few years, such malls would witness yields improving and rental values inching up, thereby improving returns for investors,” Anshulobserved.

MUMBAI RETAINS ITS MARKET SHARE WITH 32% OF TOTAL PERE

Attracting 33% of the total investments, Mumbai retained its top position in PERE with inflows of about INR 130 bn (USD 1.94 bn). In Mumbai, the residential segment’s share accounted for almost 55%, with inflows in office assets accounting for 27% share. In the residential segment, almost the entire quantum of was at the SPV level, especially in the western suburbs of the city. Delhi-NCR follows Mumbai in terms of total inflows of INR 103 mn (USD 1.5 bn) during 2016. The residential segment attracted nearly INR 55 bn (USD 0.82 bn) with Ghaziabad, Noida, Greater Noida accounting for 35% of the residential inflows during the year.